Philippine Central Bank Signals Steady Interest Rates as Inflation Rises and Growth Slows 
U.S. Treasury Yields Expected to Decline Amid Cooling Economic Pressures 
Bank of Korea Expected to Hold Interest Rates as Weak Won Limits Policy Easing 
U.S. Banks Report Strong Q4 Profits Amid Investment Banking Surge 
China Holds Loan Prime Rates Steady in January as Market Expectations Align 
Fed’s Anna Paulson Signals Rate Cuts May Come Later as Inflation Cools and Labor Market Stabilizes 
Geopolitical Shocks That Could Reshape Financial Markets in 2025 
U.S. Urges Japan on Monetary Policy as Yen Volatility Raises Market Concerns 
RBA Deputy Governor Says November Inflation Slowdown Helpful but Still Above Target 
US Futures Rise as Investors Eye Earnings, Inflation Data, and Wildfire Impacts 
Wall Street Analysts Weigh in on Latest NFP Data 
Bank of Japan Signals Cautious Path Toward Further Rate Hikes Amid Yen Weakness 
Fed Confirms Rate Meeting Schedule Despite Severe Winter Storm in Washington D.C. 
Brazil Holds Selic Rate at 15% as Inflation Expectations Stay Elevated 
Bank of America Posts Strong Q4 2024 Results, Shares Rise 
ECB Signals Steady Interest Rates as Fed Risks Loom Over Outlook 
With the deterioration in the local political situation and a less supportive environment from higher G3 yields, the outlook for the lira is worsening, in our view.
We find option exposure most attractive at present, with implied volatility and skew trading near their lowest levels in a year when we entered our USDTRY call on 7th November. USDTRY vol has recently spiked higher following the global risk-off after the US election results, (see above chart).
Going forward, the absence of local FX selling in the coming weeks could render USDTRY a lot more volatile than the market has grown accustomed to, in our view.
The central bank has expressed concerns over the currency, suggesting it would not cut rates further without FX stability, but we doubt this is enough to stabilize the lira.
On the flip side, Fed’s rate hikes in December and easing cycle in 2017 is very much on the table.
While the CBRT could conduct FX sale auctions or release FX liquidity from its FX liabilities like it did last week, we think the impact of these measures would be modest, and so we do not expect the central bank to be particularly proactive with its toolkit to stabilize the lira in the interim, with dollar’s bullish signal from FxWirePro Strength Index (102), we could foresee the next higher levels of USDTRY to 3.40 levels and above.
As a result, we could also see that higher flashes in IVs of ATM contracts of USDTRY, 15.69% and 14.25% for 1m and 2m tenors respectively.
We recommend longs in ITM delta USDTRY call (3.25) of 06-Jan-17 expiry, at spot reference: 3.31.
Alternatively, risk averse could also enter into diagonal call spreads for cost effectiveness, it is advisable to go long in 1M (1%) OTM 0.36 delta call, while writing 1W (1%) ITM call with positive theta and delta closer to zero (both sides use European style options), this credit call spread option trading strategy is recommended when the underlying spot FX price is anticipated to drop moderately in the near term and spikes up in long term.
